Q47PGB_2 - Horngren'S Financial And Managerial Accounting

Question

Question: Identifying sources of equity, stock issuance, and dividends

Tillman Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:

Preferred Stock—5%, ? Par Value; 625,000 shares 

 authorized, 325,000 shares issued and outstanding

Paid-In Capital:

\( 1,300,000

1,350,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,600,000

Total Paid-In Capital 5,250,000

Retained Earnings 11,800,000

Total Stockholders’ Equity \) 17,050,000

Common Stock—$1 Par Value; 7,000,000 shares 

 authorized, 1,350,000 shares issued and outstanding

Requirements

2. What is the par value per share of Tillman Comfort Specialists’ preferred stock?

Step-by-Step Solution

Answer

Answer

$4 is the par value per share of preferred stock.

Step 1: Par value definition

Par value is the value set by a corporation's charter of a single share. It is not generally related to the actual value of the stock.

Step 2: Calculation of preferred stock par value

$$\begin{gathered} \mathbf{Preferredstockparvalue}\mathbf{=}\frac{\mathbf{Amountofcapitalraised}}{\mathbf{Noofshares}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{300}\mathbf{,}\mathbf{000}}{\mathbf{325}\mathbf{,}\mathbf{000}} \\ \mathbf{=}\mathbf{\$}\mathbf{4} \end{gathered}$$